Beginning investment plan for 30 year old

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Guero
Posts: 3
Joined: Tue Sep 11, 2018 2:56 pm

Beginning investment plan for 30 year old

Post by Guero » Tue Sep 11, 2018 3:08 pm

Hi all,

Was hoping to get some advice on starting out investing for retirement. I'm 30 years old, make around $50-$60k per year, and rent. For all of my twenties I carried around lots of credit card debt and was unable to save anything. I recently got a promotion and a second job and set a goal of aggressively paying of my credit card debt, a goal I recently completed.

I would now like to make a plan to invest the $2,000-$2500 or so per month I was paying towards my debt towards my retirement. I have already setup an automatic 6% contribution from each paycheck to my company 401k, which is the max that they will match, and made a plan to put the max $5500 in a Roth IRA. I've also opened a high yield online savings account to put money for an emergency fund. My question now is what I should do with any additional money I can save. Should I max out my allowable contributions to the 401k? Or is it better to start putting some money into a taxable account? Or start saving for a house? At this point I'm hoping to be able to retire, or at least withdraw 4% from my retirement account before I'm 59.5.

Any advice is greatly appreciated!

PFInterest
Posts: 2518
Joined: Sun Jan 08, 2017 12:25 pm

Re: Beginning investment plan for 30 year old

Post by PFInterest » Tue Sep 11, 2018 6:52 pm

yes max 401k first prior to taxable. however, thats for retirement.
20% is a good goal for retirement. which is only 12K for you. so 5.5K in a rIRA, then 6.5 in the 401k.

make sure you have an efund. then its saving for a car, vacation, etc.

Flyer24
Posts: 357
Joined: Sun Apr 08, 2018 4:21 pm

Re: Beginning investment plan for 30 year old

Post by Flyer24 » Tue Sep 11, 2018 6:59 pm

PFInterest wrote:
Tue Sep 11, 2018 6:52 pm
yes max 401k first prior to taxable. however, thats for retirement.
20% is a good goal for retirement. which is only 12K for you. so 5.5K in a rIRA, then 6.5 in the 401k.

make sure you have an efund. then its saving for a car, vacation, etc.
I like all the advice above.

How long do you expect to keep renting? It might be a goal to save for a future down payment if all your other accounts are fully funded.

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camillus
Posts: 526
Joined: Thu Feb 28, 2013 9:55 pm

Re: Beginning investment plan for 30 year old

Post by camillus » Tue Sep 11, 2018 7:14 pm

The advice generally goes like this. Max accounts in this order:

401k to match
HSA if available
IRAs - Traditional or Roth
401k to max
529 if desireable
Taxable

Somewhere in there you should establish an emergency fund. Here's an interesting strategy to read about, involving using a Roth IRA as a temporary emergency fund: https://www.bogleheads.org/wiki/Roth_IR ... gency_fund.

Also, there's an element of needing to establish your life goals. Do you want a down payment for a house? Do you want to establish a car-fund to buy your next car with cash?

If you average $2250/mo savings, that's $27,000 per year.

That a maxed 401k at $18,500, a maxed IRA at $5500, leaving $3000 per year to invest in taxable. Actually, that's not true. There's more money to account for with the deductability of the 401k: $2220 if you are in the 12% bracket to add to your taxable investments. Making annual savings look like this:

$29,220 total savings
$18,500 in 401k
$5,500 in Roth IRA
$5,220 in taxable

Congrats on being debt free :happy

Guero
Posts: 3
Joined: Tue Sep 11, 2018 2:56 pm

Re: Beginning investment plan for 30 year old

Post by Guero » Tue Sep 11, 2018 7:50 pm

Thanks everyone for the replies! It's a lot to learn after spending my life to this point uninterested in this stuff. I realized that my company gives the option to contribute to either a traditional 401k or a Roth 401k or some mix of both. What would be the right way to go here? Does is make sense to do the max 401k in Roth as well as a Roth IRA, or should I do a mix? Its through Fidelity, and I opted for 80% in an S&P index and 20% in a bond index. The default target date fund seemed like it had high fees.

Also, had a few more questions regarding housing. Prices are high in my area, and a decent single family home without crippling HOA fees runs maybe $350,000 so I have a ways to go for a down payment. After maxing out my retirement accounts and building an emergency fund, am I better off putting money in savings for the down payment or opening a taxable investment account and continuing to rent? I pay about $650 a month now.

Thanks again for all the help

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camillus
Posts: 526
Joined: Thu Feb 28, 2013 9:55 pm

Re: Beginning investment plan for 30 year old

Post by camillus » Tue Sep 11, 2018 8:36 pm

Guero wrote:
Tue Sep 11, 2018 7:50 pm
Thanks everyone for the replies! It's a lot to learn after spending my life to this point uninterested in this stuff. I realized that my company gives the option to contribute to either a traditional 401k or a Roth 401k or some mix of both. What would be the right way to go here? Does is make sense to do the max 401k in Roth as well as a Roth IRA, or should I do a mix? Its through Fidelity, and I opted for 80% in an S&P index and 20% in a bond index. The default target date fund seemed like it had high fees.
There are different perspectives on this, but I think most bogleheads would recommend a traditional/deferred 401k paired with a Roth IRA.
Also, had a few more questions regarding housing. Prices are high in my area, and a decent single family home without crippling HOA fees runs maybe $350,000 so I have a ways to go for a down payment. After maxing out my retirement accounts and building an emergency fund, am I better off putting money in savings for the down payment or opening a taxable investment account and continuing to rent? I pay about $650 a month now.
I suppose the best possible thing to do - financially speaking - is to continue the status quo, since jumping from a $650/mo rental to a $350k house is quite a difference in "housing consumption." It might be the case that you have found a sweet deal with your rental, and keeping it as long as possible while investing is a good idea.

Another thing to do is look again at buying a more equivalently sized place to what you are renting now. If you are renting an apartment, what about a condo or a townhouse? Again, this falls outside of financial advice and more into the realm of life goals.

One thing to consider is you are able to pull from a Roth IRA for a down payment, given certain criteria are met: https://www.nerdwallet.com/blog/investi ... -buy-home/

There are some more advanced strategies for saving for a downpayment with a mix of different accounts, and toying with your asset allocation. For example, going 50:50 stocks:bonds while you are saving up a down payment. Once you are closing on a house, liquidate your taxable and withdraw from Roth as much as necessary for your downpayment & costs, then revert to a 80:20 portfolio across your accounts.
Thanks again for all the help
:beer

Guero
Posts: 3
Joined: Tue Sep 11, 2018 2:56 pm

Re: Beginning investment plan for 30 year old

Post by Guero » Wed Sep 12, 2018 9:15 am

Thanks, that's so helpful. That gives me a lot of ideas on my next steps.

The problem with condos where I am is the HOA fees. You can get a one or sometimes even 2 bedroom condo in the mid $200k, but HOA fees are over $600 a month. And, from a personal point of view, I couldn't stand owning something and having the bored HOA president threatening to fine me over where I stacked my wood or something. If I did end up buying I think it would have to include someone helping to pay the mortgage, either my relationship or a roommate.

Thanks again!

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ruralavalon
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Location: Illinois

Re: Beginning investment plan for 30 year old

Post by ruralavalon » Wed Sep 12, 2018 2:01 pm

Welcome to the forum :) .

Guero wrote:
Tue Sep 11, 2018 3:08 pm
Hi all,

Was hoping to get some advice on starting out investing for retirement. I'm 30 years old, make around $50-$60k per year, and rent. For all of my twenties I carried around lots of credit card debt and was unable to save anything. I recently got a promotion and a second job and set a goal of aggressively paying of my credit card debt, a goal I recently completed.

I would now like to make a plan to invest the $2,000-$2500 or so per month I was paying towards my debt towards my retirement. I have already setup an automatic 6% contribution from each paycheck to my company 401k, which is the max that they will match, and made a plan to put the max $5500 in a Roth IRA. I've also opened a high yield online savings account to put money for an emergency fund. My question now is what I should do with any additional money I can save. Should I max out my allowable contributions to the 401k? Or is it better to start putting some money into a taxable account? Or start saving for a house? At this point I'm hoping to be able to retire, or at least withdraw 4% from my retirement account before I'm 59.5.

Any advice is greatly appreciated!
It's certainly better to make maximum contributions to your 401k as a priority ahead of investing in a taxable account, as long as any decent funds are offered in your 401k. It does seem that decent funds are offered in your 401k ("S&P 500 index . . . and bond index").

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments".


Guero wrote:
Tue Sep 11, 2018 7:50 pm
Thanks everyone for the replies! It's a lot to learn after spending my life to this point uninterested in this stuff. I realized that my company gives the option to contribute to either a traditional 401k or a Roth 401k or some mix of both. What would be the right way to go here? Does is make sense to do the max 401k in Roth as well as a Roth IRA, or should I do a mix? Its through Fidelity, and I opted for 80% in an S&P index and 20% in a bond index. The default target date fund seemed like it had high fees.
For most people traditional 401k contributions will likely be better.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional 401k contributions will probably be better. In addition when you withdraw from your 401k in retirement, your income is not all taxed at your marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)."

Will you be eligible for a substantial pension? A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming in addition to Social Security. TFB blog post, "Most TSP participants should switch to the Roth TSP". That post discussed the effect of a federal pension, but the analysis should hold for other pensions.

Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth.
* Otherwise, prefer a traditional account."

Many people make traditional contributions to their 401k, and contribute to a Roth IRA.



Guero wrote:
Tue Sep 11, 2018 7:50 pm
Also, had a few more questions regarding housing. Prices are high in my area, and a decent single family home without crippling HOA fees runs maybe $350,000 so I have a ways to go for a down payment. After maxing out my retirement accounts and building an emergency fund, am I better off putting money in savings for the down payment or opening a taxable investment account and continuing to rent? I pay about $650 a month now.
All housing markets are local, I can't help with the rent vs. buy decision.

Money intended for use in 5 years or less should be in a very safe savings vehicle, such as a federally insured savings account or short-term CDs ( for rates see www.bankrate.com), another possibility is a money market fund such as Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.08%.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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